How to Trade

How to Trade

RobertBuran1 How to TradeBy Robert Buran

How to Trade and How NOT to Trade

How-to-Trade How to TradeI have selected the rather generic title, How to Trade, because I am covering a lot of my most treasured stock trading secrets and stock trading ideas and these ideas may seem unusual to many and may in fact defy conventional categorization of stock trading methodology.  So I have used the most generic title I could think of.

My ideas about trading do not fit in with conventional thinking about how to trade nor do I fit in with conventional traders.  But if you want to pick up some invaluable information about how to trade stick with me throughout this long article and you will not be disappointed.

In this article I will disclose fully a critical theory of stock market behavior.  And I will debunk “The Atomic-Bomb- Instruction-Book theory” of market behavior.  And finally I will disclose fully, highly profitable programmable stock trading systems along with an explanation of the theory that makes them profitable.  This article is a must for any frustrated small stock investor.


At the outset I am going to let you in on a dirty little secret that has less to do with how to trade than it does to  how NOT to trade.  Of all the forces in the economy that have caused people to lose money in the stock market, none have been greater than the advice of financial experts and brokers.  Brokers and most financial advisers could care less about your financial well being and if you follow the advice of these people it is highly unlikely that you will do anything more than contribute to their salaries and retirement.

We may be hurting but believe me Wall Street is still very fat and still a little stupid.

These Wall Street fat cats are the same people that put much of the world’s economy in the toilet in 2008. But of course the Wall Street Fat Cats had followers and there were a lot of people willing to listen to the advice of these morons also.

But that is all history now.  The good news is that in 2015 is that the market has recovered and we have had a full blown bull market for nearly five years.  Yeah things got a little rough in the summer of 2015 ( see the crash of 8-24-15) but as recently as early September 2015 I woke up to this on one of my screens for a managed account (click this image to enlarge):

Market-Positions-9-3-15-300x238 How to Trade

  Trading is good and the economy will certainly recover.  And this is a great time for stock market investment.  It is time for the little guy to take revenge.  When I took this screen shot I was using a system called JORDI, but you do not need to buy my software to do good.  Just keep reading.

 DO IT YOURSELF (see Stock Investors)

If you want to make money in the stock market you need to do it yourself.  So how do you do it yourself?  Do you need to study companies and economics or, God help us all, technical analysis?  Emphatically I say no.  All you need to make it in this market is a simple automated trading approach to investing and the discipline and willingness to follow your ideas.

grand-combo1-234x300 How to Trade

I have been trading automated trading systems for nearly 20 years and starting with practically nothing I have made a pile.  I do not know the names of the companies I trade and the only thing I care about concerning brokers is that I pay them the bare minimum for transaction costs.  The subject of technical analysis puts me to sleep.

I should also define what I mean by automated stock trading.  I am not talking about turning your order execution over to a computer.  What you turn over to a computer is the decision making process, to buy or sell a given market, but you are still going to manually execute the order.  Executing the order manually may be central to the success of our trading methodology .


How-to-Trade-3 How to Trade

What brokers, market advisers and a lot of other well meaning people want you to believe is that market behavior is extremely complicated and that the description of any truly profitable automated stock trading system that purports to predict market behavior AND that makes money would, in theory, be equivalent to an instruction book for building an atom bomb.

I know a lot of people that have attempted to become winning traders who have mirrored this kind of thinking in their search for profitable automated trading systems.  Let me tell you a true story:

I knew a brilliant engineer whose creative engineering ideas had made him very wealthy.  But just being wealthy and being a great engineer did not satisfy him.  This brilliant engineer wanted to write the definitive mathematical formula to predict all market behavior.  He was understandably confident of his math skills and he expected to be able to do this with a formula that might run 50 pages or more.

The man actually interviewed me as a potential employee and associate.  What I remember most about my interview was our discussion of the necessity of securing his home from attacks.  Once the world realized that we had the formula to predict all market behavior we would have to secure his property with walls, electrified barbed wire and armed guards.  We would, after all, be holding secrets that would allow us to take over the financial world and as such our secrets were of greater interest to hostile elements than national military secrets.  We would in effect become a financial nuclear power.

This man was not crazy; he was brilliant.  But I did not go to work for him and I nevertheless might have dismissed him and this incident had I not met other brilliant people who seemed caught up with the same idea.  And that idea, the idea that it was possible to find the Holy Grail that could predict all market behavior, also included the necessity of fortifying the trader’s home against outside attacks and intrusions.


So in order to give you a taste of what I, a successful trader, think about market secrets, I am going to publish in this article and in the printed word you are presently reading, my very accurate formula for predicting market behavior.

This description however will be best understood with a demonstration.  You will first need to find a large yard or perhaps a park with soft green grass.   Take a tennis ball to the park along with a pen and note book.  First look 360 degrees around where you are standing and then write in the note book where the ball will land when you throw it.  Now close your eyes and start twirling around and around until you feel you are about to fall.  Then just before you collapse to the ground throw the ball hard as you fall.  Now open your eyes and note where the ball has landed and compare this with the prediction that you wrote in the notebook.

Now you have just discovered the most important rule of market behavior.    All market movement is predominantly random.   Only a small part of market movement is non random and hence only slightly predictable. (see Stock Market Price)

So my brilliant engineer friend is not going to be able unlock the secret of market movement with PHD level mathematics.  In fact fourth grade math will do just fine.

When you see an advertisement for a trading system that says it is 90 % accurate, you can file it with your trash and garbage because no such thing exists with appropriate testing.  You cannot get 90% accuracy out of data that is predominantly random.  Garbage in and garbage out.


Keep your stock trading system simple and you can be a rich trader.  When dealing with market data that is predominantly random the only way to get to the part that is slightly predictable is to stick with the simplest ideas with the fewest parameters.

Automated-Trading-System1-228x300 How to Trade

Let me give you an example of a stock market trading system with few parameters.  At the close of a market day you take the LOW of the day and subtract it from the HIGH of the day.  Next you take half of that value and add it to the CLOSE.  So let us say that on Monday WUZOO makes a high of 20, a low of 10 and closes at 14.  Then we will subtract 10 from 20 to get 10 and take half of that to get 5.  Then we will add 5 to 14 to get 19.

The number 19, (.5(H-L)) +C, is the market price to buy on Tuesday.  If the buy price is hit on Tuesday you hold the position until the open on Thursday and then you sell it.  That’s it.  There is nothing more to this simple system with the most limited number of parameters.


I have been doing this kind of market research since 1984 and I am going to tell you that even without programming and testing this simple system, I know this simple system will work.  But for the skeptics I will offer some data and test results.  Nevertheless I am limiting the amount of data I present here in order to keep this article easier to understand.  But if I wanted to prove my theory in a Court of Law I would use more data.

I randomly selected four markets from the top of my list of stocks I traded a while back and arranged alphabetically.  The four markets I selected were ADCT, ADSK, AMD, and ABGX.

I tested each market using this simple trading system for one year.  I used a formula that commits $10,000 to each trade, hence you buy 2000 shares of a stock trading at $5.00 and you buy 200 shares of a stock trading at $50.00 etc.  I tested ADCT, ADSK, and AMD from mid January 2009 to mid January 2010.  As a check against correlated markets I tested ABGX from mid August 2000 to mid August 2001.

In the real world of stock market trading and trading on margin you could probably trade all four of these markets at the same time with about $10,000 in cash.  Furthermore it is unlikely you would ever get a margin call on a trading system that is out of the trade on the open of the third day.  By the time the margin clerk calls you are out of the trade.

This is the net profits from each market:  ADCT $2,376, ADSK $2,401, AMD $4,308, ABGX $7,299.

If I put the numbers for all four markets together this is what they look like:

NET PROFIT = $16,385

Gross profit = $35,604

Gross loss = $19,219

Number Trades = 111

Number win = 72

Number loss = 39

% profit = 65%

Average Trade (win loss) = $148

MAX intra-day drawdown = -$2,848

This is pretty decent performance for trading random price behavior.  You can repeat this test in all kinds of markets and use data as far back as you want to go and you will get similar results.  It is not the Holy Grail, but it does a good job of taming the randomness of the marketplace while protecting your precious trading equity.

A good trader can take this kind of performance and get 100 % annual return on his or her investment.  And if you can get 100% annual returns you can become a rich trader.

This kind of system will always work because it is simple and has limited parameters.  Don’t give this system to a really smart person because they will screw it up!

I have done this kind of trading in real time for over two decades, but I have not yet had to put walls around my house or put up electrified fencing.  I will let you in on a dirty little market secret.  THERE ARE NO TRADING SECRETS IN THE MARKETPLACE.  What I publish here will make no difference in market behavior.  I put my stuff on a web site; it makes no difference regarding my system performance.

Automated-stock-trading-systems How to Trade

You can see that this is hardly rocket science.  In fact I could come up with four more of these systems that are just as good in any given evening.  If I worked on it I could develop about 100 systems like this in a month.  I know a couple of the most successful fund managers that do exactly this.  If you have $100,000,000 fund to trade you need a lot of trading signals and this approach is perfect.


This approach works well for the small investor as well.

I like to take advantage of the short term nature of this kind of system and trade a lot of markets with it.  With short term stock trading we hit and run, spread our money thinly across many markets and we trade a lot.  I am currently managing around 60 stocks with a similar trading system I call “Jordi” and in some of my accounts  I do not put more than a thousand dollars into any given trade at a time (that is only $500 traded on margin).  and so $20,000 covers the margin requirement for 60 stocks, but I think you could still cover 10 to 12 stocks with only $3,000.  But trading 60 stocks gives me a lot of protection against deep draw-down.  If you are trading that many markets something good seems to always happen even on bad days.

And that, by the way, is why I would not consider anything but  mechanical trading, automated stock trading systems, for trading stocks.  I cannot study 70 companies and I cannot watch 70 markets.  But I can program these simple systems and let a computer keep track of everything and beep me when I need to buy or sell.  I sit in front of computers everyday in my pajamas, drink coffee and clean up.  Well most of the time I clean up.  Lol.

You as a small investor need not be intimidated by the marketplace.  If you develop a simple short term approach to trading and trade it systematically and methodically and with discipline, you can beat the pants off the majority of traders, professional and otherwise.  They are the Wall Street Morons.  Be your own boss and do it yourself.  The marketplace is full of morons and usually the morons make huge salaries and dress and talk smarter than we do.   My advice to you, the small investor, is to go after them with solid, systematic, automated trading.  And understanding that is among the most important rules of How to Trade.

Copyright 2010-2015 Short Term Stock Trading        

Stock Market Price

Stock Market Price


RobertBuran1 Stock Market Price  By Robert Buran




Understanding Stock Market Price Movement


If you are going trade stocks you are going to have to understand stock market price, how stock market price changes, and in short, what moves the stock market.  My ideas about stock market price are unique and so let me expound a little on this subject.

Rule-of-the-Screw1-229x300 Stock Market Price

Stock Market Price

The Rule of the Screw: ”Stock Market Price must move in such a manner so as to Frustrate, undermine and defeat the best interests of the majority of market players. According to this rule of stock market price movement the majority cannot make money in the stock market.

The stock market will totally ignore technical indicators and fundamentals if the majority of the stock market players act on those technical indicators and fundamentals.

Furthermore I believe that stock market price movement is predominantly random.  Although stock market price movement may not be 100 percent random I believe that it is  predominantly random.

So why is much of stock prices random?  It is because the forces driving stock prices are rooted in human emotion and judgment, and I am even including algorithmic trading in this mix, and the net effect of these various vectors of force or  pressure upon stock market price, adds up to randomness that is impossible to predict with any degree of accuracy.


The Secret to making money in markets with randomly driven stock prices.

The “secret” to making money in the market is locating that small portion of market behavior which is not random and exploiting it. I do not feel that conventional technical analysis is of any value in doing this. The problem with technical analysis is that it will present the illusion of uncovering hidden relationships between price behavior and various indicators.

I would submit that all such indicators are as random as the price behavior they attempt to predict and that all profits and losses realized from trading such indicators will be randomly distributed.

In my opinion technical  analysis is pseudo science.

Isaac Newton and the Market Place:

In place of technical analysis I prefer something I simply call market momentum theory.  For more details see my article, Stock Trading for Dummies.

  • First law of price movement is:

If stock market prices move up there is greater probability they will move higher rather than lower.

  •  Second law of price movement is:

If stock market prices move down there is greater probability that they will move lower rather than higher.

And from these simple rules comes the most important rule of trading:

  • If stock market price goes up you must buy the market and if stock price goes down you must sell the market.

You  may read this and think “well so what?, that is obvious”.  But trust me most traders and trader wannabes do not think that way at all.  When the market goes down they want to buy to get a better price.  And when the market goes up they hesitate because price is too high.

And they do not make money!  They are a part of the losing majority.

Let us look at the following chart:

Chart-Fig11-300x181 Stock Market Price



This is exactly what system sales people show in ads.  They show that their system buys the lows and sells the highs.  But that is a fantasy and it cannot be done.  And successful traders know this cannot be done.  Yet some smart traders see this and they end up buying the system because it shows traders what they want to believe.  Even smart traders can get sucked into this kind of thinking.  We all want to believe in perfect trading.

The problem is that when we look at any chart we want to buy low and sell high. You cannot, however, buy bottoms and sell tops. You can only follow a trend which has already been established through price movement in the same direction as the position you are taking.  To do the opposite is to commit trading suicide.

You must understand that when you elect to buy a market when price rises you are in effect buying the market at the worst possible price at the time of your entry. It’s not going to feel good and it’s not going to look good on the charts. But by “buying high” you are probably going to be placing yourself on the minority side of the market and therefore assuring yourself of profits.  You are on the right side of the rule of the screw.

Exiting a Position using Stock Market Price

Getting out of a stock market position is just as critical as getting in.  In my opinion most of the popular ideas for getting out do not work.  Let us look at just two of those ideas, the stop and reverse method and the trailing stop method.

Stop and Reverse method of exiting a trade:  The stop and reverse method involves utilizing some kind of indicator or a price based on an indicator. If the system is long one contract and the market comes back and the price is hit the system sells 2 contracts and reverses to a short position and so on. If you have read much of my material you know I do not like to short the stock market.

Of all possible trading strategies I have found this to be the least profitable and grossly inefficient with respect to the use of margin money. I will discuss margin efficiency in greater detail later but for now it need only be said that systems that are in the market all the time tie up your margin needlessly (see my article,

In and Out Trading). Markets tend to move sideways about 85% of the time and consequently these systems will have your margin money tied up doing absolutely nothing for at least 85% of the time. These systems can also whipsaw you to death while moving sideways.

A system like Jordi’s Intra-Day2 is, by contrast, very margin efficient.  It gets into a market only when a given market starts significant movement and it is  usually out of the trade the following day.  “Jordi” does not tie up your margin money.

Trailing Stop:

The second most common way mechanical systems take profits is through the use of a “trailing stop.” The idea behind a trailing stop is that it allows you to “let your profits run” while at the same time “locking in” any profits you may have already made. My experience with system design and trailing stops has been that the trailing stop is at best a mediocre method of exiting a profitable position. The problem is that if the trailing stop is too tight it results in your having your stop tagged right before the start of a big move. Conversely if your stop is too deep it results in many small profits going to large losses.

The other problem I have with trailing stops is more theoretical. With a trailing stop you are trying to take profits only after the market has turned against you. Frequently you are forced to sell out your long position when many others are trying to sell too. You are then moving with the crowd and this is almost inevitably going to cause you excessive losses.

Therefore the rule I have developed with regard to taking profits is:
You should try to take profits only when the market is moving strongly in your favor.

This is much more consistent with my contrary philosophy of trading. If you are long a market and the market takes off like a space ship you should sell. By doing so you put yourself on the minority side of the market selling to the majority of panicked buyers. That is how you make money in this game.

What should you do, however, if your position starts out bad, get worse and then threatens an uncontrolled hemorrhage of your account equity?
Unfortunately this happens with about 15 or 20% of our trades and our ability to keep these losses within a normal distribution pattern is what makes or breaks us as traders. This is a particularly critical issue if you are using Systems without stops on day of entry.
Out of  frustration I developed a simple strategy that probably works better than anything I ever developed. If you are sick of always having your stops run, this simple strategy is going to be a big help. If you got into a trade based on a longer time frame such as a time frame based on daily data you need to develop a stop loss strategy that is based on a shorter time frame.

This is why Jordi’s Intra-Day2 is an improvement over my previous systems using only daily data.  Jordi uses two data streams, daily data and 15 minute bar data.

To see how looking at two different data streams can improve our analysis you should kick up a chart on your computer screen and set the bars to something like 3 to 10 minutes. If you are following our trading rules you are going to buy when the market goes up. This upward movement should create some kind of upward wave on the intraday chart. You should measure this wave from its top to its bottom and if you are long the market you should place your stop at the point that represents a 75% retracement of that wave. If you are short the market you simply reverse the process. Hence my rule for placing your protective stop is:

Place your protective stop at a point that represents a 75% retracement (5/8 or 6/8) of the wave/move that got you in.

Let’s look at an illustration:

Chart-Fig21-300x182 Stock Market Price


Here again you see why the “buying high” strategy doesn’t sell systems. Buying point B (which is the high) looks like a terrible place to enter this market. Why not sell at point B? Or if we have to go long why didn’t we buy at point L (which is the low)? Don’t despair.

Because you feel that way others will feel that way also and so they, the majority of market players, won’t buy because it’s too scary. The market in the best tradition of the “Rule of the Screw” will sense this hesitation by the timid majority and move much higher. That will encourage the timid majority and they will then jump into this market in a buying frenzy.

At that time you will calmly sell your positions back to the frenzied majority and take your profits.  The whole scenario looks something like this (click to enlarge):

Chart-Fig31-300x230 Stock Market Price

Maybe you think I am just making this all up and drawing my own wiggly lines.  But I am not just talking about markets and stocks 20 years ago.  As recently as September 2015 I woke up to see this screen on one of my managed accounts (click this image to enlarge it):

Market-Positions-9-3-15-300x238 Stock Market Price

This is a real time example of exactly what I am talking about.  All the stocks being held here had opened higher up but LCI had gone through the roof and the equity in this account had jumped by 6% overnight.  I took profits within two minutes of this screen shot and was happy to sell to the frenzied  majority.  By the end of the day their profits were cut by more than 50%.

But the real point I’m making is that when you first get into these trades they seldom look good and you need to use the 75% retracement rule to place a stop so as to give yourself some peace of mind. If you go back and look at Figure 2 you can see how this stop was calculated. I measure from point L (low) to point H (high) and take 75% of that and subtract that from point H to determine the stop which is equivalent to the price shown at point SS (sell stop).

If you are an Elliot Wave purist you may notice that there are other smaller waves in figure

Try to keep it simple and try not to miss seeing the forest for the trees. I’m not an Elliot Wave purist and what I do with a 3 to 10 minute chart is to measure from the highest high after your buy point has been hit to the lowest low on the screen.

Usually that is going to be the lowest low in the last day or two. That’s what I mean by “the wave that got you in.”

The Fibonacci Connection

Some of you sharper readers may at this point notice that maybe I might really just be playing around with Fibonacci ratios. Indeed what we are really saying when we elect to place a stop at “75% retracement of the wave that got you in” is that if the market fails to be supported at the 5/8 or .618 Fibonacci retracement point, it becomes a “Fibonacci failure,” a trend reversal and we need to get out of the way of a collapsing market.

Believe me you are going to be very happy to be out of the market if these stops are hit and it will be very unusual for the market to “tag” these stops and then move higher. This is the most effective stop loss strategy we use.

Some of you technical analysts may at this point feel somewhat vindicated. Here I am telling you first that technical analysis is a lot of baloney and then I turn right around and start using Fibonacci ratios for stop placement.

Of course the ratio .618 wasn’t invented by a technical analyst. It was known to ancient Greek and Egyptian mathematicians as the Golden Ratio or the Golden Mean and was used in the construction of the Parthenon and the Great Pyramid of Gizeh.

 Summary and Conclusions regarding stock price movement

These “laws” (If stock prices move up there is greater probability they will move higher rather than lower and If stock prices move down there is greater probability that they will move lower rather than higher) are permanent, will not break down and cannot change in the future.

Once we have entered a trade based on these rules we will reject traditional “stop and reverse” and “trailing stop” strategies of exiting our trade. Instead we will:

Take profits only when the market is moving strongly in our favor and place our protective stop at 75% retracement of the wave that got us in.

Some of you may at this point be ready to reject these market theories as being far too simple to be useful. Before you toss these ideas in the trash, however, I want you to look below and see at my equity curve for a seven years period when I was just beginning to learn the trading game. Look at the summary of my monthly profits from January 1, 1989 when I started using automated software, through June, 1991. Look at the consistent income and small draw downs.
How many gurus do you know who have included seven years of real-time trading records along with the materials they are selling?

I learned these rules in the marketplace and while attending the “School of Hard Knocks.” On the surface they may seem simple, but implementing them in the marketplace is a more complicated process.

You can integrate these ideas perfectly into your short term stock trading.  Later I will show you how you can consistently gain an edge on the stock market and automate a stock market trading system using these same simple rules. Using these strategies and rules of stock market price you need not fear that these basic rules will break down or stop working. They can’t stop working anymore than Newton’s Law of Gravity can stop working.

Consider reviewing my market momentum theory in the article, Stock Trading for Dummies.

I believe if we stop looking at all those wiggly lines, stock market charts and complicated formulas and concentrate instead on simple up and down stock market price movement we can out perform the best trading professionals. Call this back-to-the-basics trading or call it anything you like. I call it financial security:

Chart-Fig51-300x249 Stock Market Price

Chart-Fig41-280x300 Stock Market Price

Trading System and Trading Strategy

Trading System and Trading Strategy

 wp-content-uploads-2013-01-robertburan1 Trading System and Trading Strategy

What is the difference between a trading system and a trading strategy?

This is the curious story of how government regulation, over a decade ago, changed the use and meaning or the words trading systems and trading strategies.

On the Google search engine nearly 1,000 people per month type in the words Automated Trading Strategies.   For me this phrase brings a smile to my face because I do not believe you can automate a strategy..  Let me tell you why.

You see the way I look at it the words “automated” and “strategies” really do not go together in the lexicon of a knowledgeable trader.  When a trader thinks of a trading strategy he is thinking more in general terms such as:

Example of Trading Strategy

trading-system-1 Trading System and Trading Strategy

“I will focus on newly issued NASDAQ stocks trading under two dollars and I will buy them on the first pull back after an initial price surge.”

In this example the word strategy is more general and global in its meaning with respect to actual market prices.
A strategy however cannot be automated unless it is precise as opposed to being general.  For a trading approach to be automated it must be based on specific market prices and   trading strategies are too general to lend themselves well to automation.

I will try to explain better.

Taking the above example, I will focus on newly issued NASDAQ stocks trading under two dollars and I will buy them on the first pull back after an initial price surge, I can convert the statement into a more precise trading statement by saying:

Example of Trading System

“If this is a NASDAQ market and if  the average close of the past 10 days is less than $2 THEN if there is a price expansion on a daily bar AND where the daily range of that expansion bar is three times the average range of the previous 10 daily bars AND the high of  the expansion bar is higher than the lowest low of the past 10 bars PLUS three times the average range of those 10 bars THEN I will BUY IF AND WHEN price comes back to the expansion bar’s high minus one half of the average range of the past 10 bars.”

The second statement is a mouthful, but it is precise, it is programmable and its validity can be tested in any market.  In theory, using a computer and the right software, you could test this idea using one thousand years of daily bar data.

But the second statement is really no longer a STRATEGY.  It is more like a TRADING SYSTEM. (For an expanded discussion of these ideas please see my article TRADING SIGNALS)

The words trading strategy is not generally applied to buying at a specific price and therefore it CANNOT BE AUTOMATED.  So I really do not understand what people are searching for when they type into Google the words “automated trading strategy”.

If a trading approach has specific predetermined rules that dictate the exact price at which a market is to be bought or sold it is called a TRADING SYSTEM not a TRADING STRATEGY.

So how did the phrase TRADING SYSTEM ever become TRADING STRATEGY?

trading-system-2 Trading System and Trading Strategy

In this case government rules changed the English language just a little.   Starting in the early 1990s government regulators and agencies sought to extend their power and influence by forcing anybody who gave market advice to register with the government, take tests, pay fees and submit to government reviews and audits.  And obviously this process implied censorship of ideas.
I did not register with the government and around 1999 I got hauled in for publishing articles about trading on the Internet.  I had to travel to Los Angeles, testify under oath for several hours and pay my attorney $25,000 to escape the tentacles of government registration, regulation and censorship.

Originally the government tried to regulate the Internet, software and even Newsletters that contained information about trading and markets.  But because of legal challenges by free speech advocates the government backed off and soon it was implied that market advice, as defined by the government, only meant giving precise and specific recommendations regarding the price at which a market should be bought or sold.

So everybody started using the phrase TRADING STRATEGY rather than TRADING SYSTEM in order to avoid the appearance of giving specific market advice that might subject them to government registration and regulation.  Probably the largest trading software developer at the time, Omega Research in Miami, launched their first system development software circa 1985 which was appropriately called

trading-system-3 Trading System and Trading Strategy

SYSTEM WRITER.  But after the government started witch hunting Omega promptly eliminated any mention of SYSTEM from any of its software and substituted the word STRATEGY.

And so Trading System became Trading Strategy

And after that everybody started using the phrase TRADING STRATEGY when they really were talking about TRADING SYSTEMS.  In fact I believe that the phrase trading strategy was invented, for very practical reasons, by the now defunct Omega Research organization as a convenient euphemism for trading system.

But it has been a euphemism that has stuck and one that is now used frequently by traders.

But in my view it is an improper use of the word particularly when combined with the word automated.   You cannot automate a trading strategy; you can only automate a trading system.

Our country is great and for the most part so is its government, but I think this story remains a cautionary tale, albeit slightly humorous, of how the power of government regulation can change how we use the English language and in fact how the government can force the IMPROPER use of the English language.

And I insist again, Trading System and Trading Strategy are different, but government regulation made them, in the minds of many, synonymous

share-buttons-share-medium Trading System and Trading Strategy Trading System and Trading Strategy

I am a trading system pro and have been trading markets and have been involved with trading system development and the programming of trading system software for 25 years. “Today Stock Market” is my opportunity to share with you some of my trading experience while discussing stock market news and giving my daily stock market update.

How do you get Rich?

How do you get Rich?


wp-content-uploads-2013-01-robertburan1 How do you get Rich?   How do you get rich trading only $10,000?

Trading $10,000 into a small fortune is clearly the ultimate challenge.  But regardless I am a little uncomfortable writing this article because it sounds a little sleazy.  But this is not about selling snake oil.   I am just trying to give some practical advise How-to-get-rich-1 How do you get Rich?based on my personal experience.

Do you have only a small amount of money and yet dream of becoming rich ?  Maybe all you have is $3,000 or perhaps you have no cash, but perhaps you could borrow $10,000?

Can a $10,000 account be traded into a small fortune?  My unequivocal answer is yes.

Is that an easy task?  No, it may be the toughest thing you have ever attempted, but I am going to offer you some ideas and tools that may help you.

The information on this web site is absolutely free so take your time and read everything you want.  In fact you SHOULD read everything.  What I do for a living is not for everybody.  Call me,  Robert Buran aka Trader Bob, at 702 490 5317, and talk to me if you would like.  I promise I will not try to sell you anything.  I can listen; before I was a trader I was a psychologist. And you can talk to me for free about getting rich!

How-to-get-rich-2 How do you get Rich?

But you will have to learn many things.  This is NOT a get rich scheme and let me repeat once more, this is not easy.

But you do not have to be brilliant; you just need to be persistent.

How I started thinking about “How do you get Rich?

About 15 years ago I wrote a book, How I Quit my Job and Turned $6,000 into a Half Million Trading. Well I can’t say I got really rich and I can’t say I got rich fast either.   Some might say my accomplishment was modest.  In fact I took 6 years to accumulate that half million dollars.  I believed in becoming rich slowly.  I did not compound all my profits and I took money out of my trading account to live on.  My trading account was seldom over $100,000.  But the indisputable fact was that I turned $6,000 into a half million bucks.

I also did something practically no other market guru has ever done, before or since.  I published most of my broker statements and offered a reward to anyone who could prove they were fakes.  To date there have been no takers.

I would estimate I have made about three million dollars trading my own money in about 20 years.  Again I made those millions starting with only $6,000 of borrowed money.

I am not the Person you would think could answer the question, How do you get Rich?

If you think my bold proposal, to turn $10,000 into a fortune, is absurd, please understand that these three million dollars were made by a guy who had no formal investment training whatsoever and who typically fell asleep during investment seminars.  In fact I find the whole subject of market fundamental analysis boring and I do not even know the names of half the companies whose stock I trade.

I would describe myself as a pretty ordinary guy who has developed over a 20 year period some pretty extraordinary ideas about trading markets.  These ideas that I have worked with for nearly 25 years have the goal of yielding maximum investment returns while keeping risk low.   When I say maximum returns I am talking something around  50 % to 250% annual returns on an original investment.  This is about the range of returns that I have realized trading my own money over many years.

To make $500,000 on $6,000 in 6 years you need an average yield of around 125% compounded.  But of course I did not compound the money; in fact I took most of the money out and used it to live on.  And so my yields actually were higher than 125%.

How-to-get-rich-3 How do you get Rich?

In fact I believe I have the best stock trading programs in the world and I could care less who laughs.

So perhaps you ask,  “does becoming rich mean I have to bet the ranch to make this kind of money?”  Absolutely not and that is why I am suggesting starting with only $10,000.  Trade your $10,000 on margin and that will give you $20,000 to work with.  Let’s do it.

Trading this modest amount into a small fortune in the stock market is our goal and this is what this web site is all about.  Stay with me and I will show you the secrets of Short Term Stock Trading for the small investor.   And rest assured I will most certainly answer the question, How do you get Rich?

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I am a trading system pro and have been trading markets and have been involved with trading system development and the programming of trading system software for 25 years. “Today Stock Market” is my opportunity to share with you some of my trading experience while discussing stock market news and giving my daily stock market update.

Trader Bob

About Me


wp-content-uploads-2013-01-robertburan1 Trader BobMy name is Robert Buran and I live in Reno Nevada.  I was born on September 14, 1943 in Madison Wisconsin.  I graduated from Madison West High School in 1961.  I earned a Bachelors degree in English and Spanish, and a Master’s degree and EDS in school psychology, all from the University of Wisconsin.  I practiced psychology in Alpena Michigan and Redlands California for about 15 years.  I left psychology and became a full time commodities futures trader in 1988.

ERW-300x245 Trader Bob

I have been a trader and TradeStation programer for over 20 years. My stock trading systems are outside the box and I post them on the web every day.

I am a single dad, age 72,  and raise my only child, a 14 year old gifted male 9th grader, unassisted.

In my “spare time” I write articles about health, diet and age reversal and I run a web site at

Want to contact me?  I should be able to get back with you via E-mail within a few hours.




    Stop Loss Order

    Stop Loss Order

     wp-content-uploads-2013-01-robertburan1 Stop Loss Order

    So what exactly is a stop loss order?

    A stop loss order is an order that you place online or with a broker to buy or sell a position when a certain price is reached.  If you are short a market you set a buy stop and if long you set a sell stop.  The idea behind a stop loss order is, as its name implies, is to prevent you from experiencing a serious loss because of adverse price movement.  For example if you own 1000 shares of XYZ you bought at 100.00 and you want to limit your loss to 20 % you would enter a stop loss order to sell 1000 shares at 80.00 stop.  If the market then falls to 80.00 or lower your stop loss order becomes a market order and your position is liquidated.

    To the unsophisticated trader it may sound like placing stop loss orders is always a good idea.  After all do not all traders want to limit their losses?  It may sound like trading heresy, but I think stops are not as important as many traders think.  There is a lot of nonsense written about trading, but one of the more amusing things I have read is about the importance of “loving your stops”.  Of course what the writer was trying to convey is the importance of protecting your stock market positions from large losses by employing some kind of stock trading stop loss.

    Stop loss orders may not always be a good idea.

    Stop-loss-1 Stop Loss OrderStop Loss Order

    However, let me say at the outset that I do not love my stops. In fact I hate my stops and only use them when absolutely necessary.  The problem is that stop losses do just that, they stop you from losing additional money.  The problem is that nobody wants to lose money and so most people will tend to make their stops too shallow and the result is they never lose a whole lot of money on any given trade, but almost all their trades go to losses and so in the long run they still lose a lot of money.

    Although I am not recommending you trade this way you need to understand that under Utopian trading conditions you can make far more money without using stops than you can with using stops.  Just about any kind of market entry will eventually go to a profit if the position is never exited with a stop loss.

    I have always known this but the point was recently driven home in a very practical way when I had to adapt the trading system I post on this web site to accommodate government regulations concerning “day trading”.  The regulation that I am referring to is the trading account requirements for “pattern day traders”.  This regulation requires that any person engaging in “pattern day trading”, that is entering and exiting a position on the same day, must have in excess of $25,000 in his or her trading account.

    I do not day trade, but sometimes I take a position, intending to keep it for two or three days, and it starts to go south almost immediately.  And to avoid a major financial hemorrhage of my account I exit the trade on day of entry.  But according to these bizarre government rules when I get out of that trade, on day of entry, in order to save my butt, I am engaging in “pattern day trading”.  And if my account has less than $25,000 in it at the end of the day, the account must be closed.

    Trading System Improved with no Stop Loss Order

    So in order to avoid this situation for both me and my customers I redesigned the system I trade on this website to trade essentially without stops on day of entry.  I was surprised to find how easy this was.  What I found is that the overall performance of the system was improved.  What I also found was that trading many markets (diversification) was actually better protection against aberrant price moves than was the placement of a stop loss.  If you are in 20 markets and you get killed in just one you might still have a good profitable day because of the price movement in the other 19 markets.
    I have been trading now without stop losses on day of entry for several years and have had no problems.  I might add that I also traded through the “Flash Crash” of May 6, 2010 as well as the crash of August 24, 2015 and I emerged from those fatal days without mortal injuries.  In May 2010 our overall losses for that month in fact were very small compared to the large profits we had made the previous five months. (please see my article, Flash Crash)

    I have posted every one of the trades I have taken since December 1, 2009 and there is not a singe trade that I have exited on the same day I entered it.  Go ahead and examine those trades and you will see the results of trading without stops on day of entry.  There are really no large losses that stand out, we certainly win more than we lose, and our bottom line shows good profits on our investment.

    I trade about 80 markets and on a really busy day I might be holding 30 to 40 positions.  In my view this is far better protection than stops.  I think that all this talk about loving your stops comes from stock index traders who almost always lose money anyway.  Stops just make their losses a little more tolerable and allow them to indulge in their gambling habit a little longer.  Believe me, I have done a lot of stock index trading in my 20 years of trading and I know of what I speak.  Stock index trading is a game of the big boys running the stops of small traders with weak hands.  If you do not have the money to allow you to use very deep stops you should stay away from the stock index game.

    Stop-loss-2 Stop Loss Order

    I do not think much of stock index trading and do not think it has anything to do with the kind of short term stock investing that we do.  Most of the stock index traders I have known are kind of thrill seekers who seem predisposed to losing money.  I have never known either a day trader or a stock index trader who really consistently made money over a long period of time.

    Contrast this with our trading approach that never ties up a high percentage of our money in any one market and consistently yields high returns year after year in all kinds of market environments.

    In summery, I believe the importance of stops has been overdone and you will make more money if you do not have to use them.  What will save you money more than price stops is spreading your money out across many markets and limiting your time in trades to two or three days.  And furthermore make sure you limit losing trades to only TWO days.

    What I am really saying is that TIME STOPS offer you more protection than do PRICE STOPS.  You should try stock trading without a stop loss order based only on price. Believe me you can live without stop loss orders.   I think you will find that the dangers of trading without price stops have been vastly exaggerated.

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    I am a trading system pro and have been trading markets and have been involved with trading system development and the programming of trading system software for 25 years. “Today Stock Market” is my opportunity to share with you some of my trading experience while discussing stock market news and giving my daily stock market update. Stop Loss Order

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    Stock Investors

    Stock Investors



    wp-content-uploads-2013-01-robertburan1 Stock Investors


    By Robert Buran



    Stock Investors, a Psychologist’s Perspective


    Stock Investors come and all sizes, shapes, styles and colors!  And some stock investors are very successful and some are not so successful.  How does the psychological profile of these two groups differ?

    stock-investors-1i Stock Investors

    Before I became a professional trader I was a psychologist.  And so naturally I am not just interested in the obvious attributes of stock investors; I am also interested in the psychology of different investors and what really makes them tick.  I want to look under the hood of stock investors, probe their minds a little, and understand what makes some successful and what makes others less than successful.  I want to know more about the psychology of stock investment.

    Not too long ago I read an article in the New York Times about John MacAfee, the founder of the MacAfee anti virus Software Company.  There are things in John MacAfee’s story that shed some light on stock-investors-3 Stock Investorsunderstanding something about the psychology of investment.

    Quite surprisingly, given his corporate position, Mr., MacAfee was not into making investment decisions himself.   Although no longer associated with that company, Mr. MacAfee was and is a brilliant businessman and entrepreneur who, it seems, for a couple decades, could do no wrong in his business dealings.

    Only a very short time ago Mr. MacAfee had a net worth of well over 100 million dollars.  Today that net worth is about 4 million.

    So what happened?  Well one of the major reason’s for Mr. stock-investors-2 Stock InvestorsMacAfee’s problems was he made a very common mistake that many other wealthy people have made.  Although John MacAfee was furiously independent in his business thinking, when it came to investing his millions he let others do it.   Rather than practice “do it yourself” investing he turned investment decisions over to “financial experts” oftentimes people who call themselves brokers or financial advisers.  And in MacAfee’s case one of their recommendations was to put millions of dollars into bonds tied to Lehman Brothers.

    Obviously Mr. MacAfee got bad advice and most people now know that Lehman Brothers was one of the first cards to fall in a financial deck that toppled in 2008.  The resulting fallout brought the world economy to its knees and five years later we are still digging out of the resulting mess.

    Mr. MacAfee also got burned in the real estate collapse as well.  And I am certain he got a lot of advice on real estate investment also.  Like stock investors, real estate investors in 2008 were also told their investments were safe.  These prices cannot go down and increasing demand and increasing prices are almost a given.

    This is the manure spread by financial advisers, brokers and people in government prior to the crash of 2008.  And 10s of millions of Americans, including Mr. MacAfee, bought into it.

    So what is this psychology of investors, and not just the psychology of stock investors, that led to John MacAfee’s downfall and the downfall of so many others in the crash of 2008?


    Stock Investors and Independent Thinking


    Years ago I wrote a book, “How I Quit My Job and turned $6000 into a Half Million Trading”.  


    Basically what I had done was to start with $6,000 of borrowed money.  I was poor and got a $6,000 chattel mortgage from my bank by putting every thing up I owned, literally the shirt on my back, as collateral to get the loan. This flew in the face of logic and the sound financial advice of almost everyone.

    Tstock-investors-4 Stock Investorshen by taking about 10,000 individual trades, I realized well over 100% annual returns on my investments for six consecutive years.  I had to take money out of the account to live on, but I still made a half million dollars in six years having started with only $6,000. Then I wrote the book, published my broker statements and got some attention.

    I am not trying to blow my own horn here, but this experience got me to thinking a lot about the psychology of investors, risks and return as well as “expert opinion”.

    I was not an expert; I developed my basic plan on a yellow legal pad on a skiing trip!  And understanding the plan required an understanding of 5th grade math and no more.  No I was not an expert.  But in some ways I was light years ahead of the experts.


    Four Specific things Stock Investors can do to Improve Returns and Performance


    I am not going to try to rewrite that book in this article, but there were four important noteworthy things I did that contributed to my success:

    1) I ignored just about everybody’s advice and I developed my own strategies for trading.  My strategies violated many sacred rules of trading financial instruments.

    2) I never held on to anything more than three days.  This kept me from being killed in the marketplace.  If I bought something and it started going for the toilet, I was out of it while I still had some money.  There is a lot of safety in trading the short term.

    3) I traded a lot of different markets.  There is also safety in diversification.  Things can go bad with one or two things, but it is rare that things go wrong with everything.  On one memorable day when all hell broke loose I lost $18,000 in bonds, but made $24,000 in stocks.  Diversification saved my butt.

    4) I did everything myself.  I developed the strategies myself, I did the trading myself and everyday I counted the money myself.


    Of all these strategies the most important is doing it yourself.  I was once fired from a good job because my boss said I was too much of a “lone wolf”.  But you have to be a lone wolf to be a good stock investor.  Contrarians may make bad employees and bad spouses, but they make excellent stock investors.  One of the truths of stock investment and trading is that the markets tend to destroy the majority following conventional wisdom and reward the minority following contrarian thinking.

    I travel a much less exciting road today regarding investing.  I do not leverage my investments as much as I used to and I only buy stocks and never go short.  That is correct, I no longer short stocks; in the year 2013 probability clearly favors rising prices.  But I still diversify and I presently take trading signals in about 70 plus diverse stock markets .

    I do a lot of programming now, but my trading systems are not that much different from what I developed on a yellow legal pad on a skiing trip 25 years ago.  That old stuff still works.  And I still do not keep anything more than three days.stock-investors-5 Stock Investors

    I have fun now is putting these trades up on this web site every day.  I keep it low key and gear it to small investors.  I do not make money everyday but I do make money the majority of days.    This web site is kind of my way of saying “in your face” to the kind of moronic advise that got John MacAfee in trouble.

    In order for stock investors to be successful they must shut out the noise and avoid the investment pitfalls that come from listening to others.  Successful stock investors must practice do it yourself investing. Simple logic is still a viable investment strategy and lone wolves still make money.  Diversification really worksShort term trading is one of the most logical and easiest ways to increase profitability while reducing risk.  In order to be a successful stock investor you must develop your own strategy, ignore the experts and DO IT YOURSELF!    

    Copyright 2010-2015 Short Term Stock Trading        

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    I am a trading system pro and have been trading markets and have been involved with trading system development and the programming of trading system software for 25 years. “Today Stock Market” is my opportunity to share with you some of my trading experience while discussing stock market news and giving my daily stock market update.

    About System

    About System

    Jordi is Hot

    Market-Wrap-Up-300x172 About System

    By Robert Buran

    COPY2-JRJC-300x199 About System

    “Jordi” is hot.  This is a snapshot of Jordi’’s performance in two days in August 2014.  This trade would have cost about $45,000 in cash and it made $32,000 plus in two days.  JORDI got into JRJC the day before a 40 + % move and got out near the top.  This is admittedly as good as it can get (click to enlarge):  Jordi is a composite of trading ideas I have developed over a 20 year period.  In the two manuals included with this package I talk about my earlier ideas that developed systems using daily data.  But my dream from the beginning was to combine these ideas with intra-day data.  My belief was that using intra-day data in combination with daily data would give a trader more control over trading problems.

    Jordi is therefore kind of my dreamJordi uses two data streams, a daily bar and a 15 minute bar.  As I describe in “Stock Trading Millionaires” I have pushed nearly two billion dollars worth of trades through the US stock market using a nearly identical algorithm as Jordi uses.

    Jordi has never before been published.

    Jordi has been modified to accommodate the small trader.   As it is presently written it can commit as little as $1,000 per trade or it can commit as much as $50,000 per trade.

    I publish daily on this site all the real time trades generated by Jordi in 60 plus markets.  I am of the opinion that a $20,000 account traded on margin would support this entire portfolio of 60 plus markets.  E-mail me at and I will send you free our current stock list.

    However, a small trader could start with as little as $3,000 traded on margin.  With a $3,000 account a trader could probably trade about 10 to 15 of these stocks.  There might be a handful of days you run out of money and would be unable to take all trades, but for the most part 10 to 15 stocks would be OK.  On a normal day, if there is really such a thing, a trader could expect to be in about two or three positions at a time.

    Jordi requires that you monitor your positions with live data.  Jordi is not for the casual trader.  HOWEVER, you can automate Jordi fully with TradeStation 9.5.  See  Full Automation of my Stock Trading Systems.

    My systems are also compatible with Multi Charts.  With Multi Charts it is possible to trade my systems with full automation and execute trades through Inter Active Brokers.  See

    Jordi is NOT a day trading system and rarely enters a trade and exits it on the same day.

    Copyright 2010-2015 Short Term Stock Trading


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    Trading Signals

    Trading Signals


    What are trading signals?

    The answer is going to depend on who you ask.

    • For example dyed-in-the-wool contrarians might believe that a stock trading signal to sell stocks might be when Time Magazine runs a picture of a bull on its cover.stock-trading-signals Trading Signals
    • A dyed-in-the-wool technical analyst on the other hand may look for certain stochastic numbers on a 30 minute bar chart to indicate when to buy a certain stock.
    • And finally a dyed-in-the-wool ‘fundamental’ investor may consider certain financial numbers of the underlying business to be a signal.

    Definition of a Trading Signal

    So to this mix let me now add what I think is a true and usable definition of a trading signal.  Let me give you an example of the kind of signal I like.

    • Take any given stock and look at all the daily bars for the past 10 days.  Next subtract all the highs from all the lows to get all the daily ranges for each of the 10 daily bars and then calculate the average range for those ten days.
    • Let’s call this AVERAGE DAILY RANGE.  Next divide each daily range by two to get the midpoint for each day.  Now find the average midpoint for the 10 days.
    • Let’s call this AVERAGE MIDPOINT.  Next take 125 % of the AVERAGE DAILY RANGE and add it to the AVERAGE MIDPOINT and that becomes our trading signal to buy tomorrow.
    • Thus we have created a signal using only two parameters, AVERAGE DAILY RANGE and AVERAGE MIDPOINT.

    Trading Signal Exit

    There are any numbers of ways to exit this trade, but again we want to keep it simple and limit our parameters.  For example we may wish to put a stop loss on the average low and take profits on the average high plus 150% of the AVERAGE DAILY RANGE.

    In any case I have created signals from the simplest ideas of market momentum theory and using the most limited number of parameters.  And for this reason this little trading system will probably tame the randomness of short term stock market movements and it will probably make some money. (For an expanded discussion of these concepts please see my articles on market momentum theory in Stock Trading for Dummies and Stock Market Price).

    What a  trading signal MUST be:

    But in this brief article I am not trying to design a trading system.  What I want to do here is simply to demonstrate my ideas of what constitutes a valid trading signal.  In my view a trading signal should embody the following:

    •   A trading signal must be mathematical and precise in nature.
    •   A trading signal must be programmable into a computer so the computer and not the trader can track the relevant markets and alert the trader to when the trading signal has been hit.  This allows the trader to diversify and to trade many markets simultaneously.
    • Finally the trading signal must be of such a nature that it can be tested in all kinds of markets and in all kinds of market environments to establish its accuracy and validity.

    Used in this manner objective trading signals form the backbone of our trading system development and become indispensable tools for profitable stock trading

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    In and Out Trading

    In and Out Trading


    wp-content-uploads-2013-01-robertburan1 In and Out Trading

    In and Out Trading Defined

    wp-content-uploads-2013-01-in-and-out-trading In and Out Trading

    In and out trading is generally understood to be a trading style whereby a security or stock is bought and sold within a relatively short period of time.  However, In and Out Trading does not necessarily mean day trading and “short period of time” can be longer than one day.  The trader employing this In and Out strategy anticipates a profit within this short period of time and then exits the position. And by definition

    In and Out Trading implies more frequent trading executions then more traditional buy and hold strategies.

    I call In and Out Trading short term stock trading and I have been using this strategy for the better part of 25 years.  I hold trades two to three days and do not day trade.  Although conventional wisdom would have that in and out trading is risky I would argue quite to the contrary.  I believe that In and Out Trading reduces risk by limiting the time that a trader is exposed to adverse market action.

    This article examines In and Out Trading and the relative effectiveness of long term vs. short term strategies for trading stock markets.  The article introduces an entirely original concept I call  “margin efficiency” to explain how relatively simple short term, in and out trading systems can realize high levels of profit while at the same time reducing risk.

    I started trading in 1984 and like many novice traders I lost a few thousand dollars.  But in 1985 I started to get the hang of it and I managed to make a few HUNDRED dollars my second year of trading.  And by 1986 my bottom line was close to 6 figures.  I really never looked back after that.  I have traded accounts of about $3,000 and I have traded accounts in excess of $6,000,000.  And I have traded them all about the same way using short term trading strategies.

    Curiously I found my success a little perplexing.  I was working in the public schools at the time and had no real academic background in finance, math, statistics or computer programming.  I used a simple break out system that got me in one day and out the next.  I did not day trade.  There are many published variations of this simple system and it clearly was not rocket science.  This trading style did not seem too risky and yet, for me, it was yielding annualized gains exceeding 100% year after year.  I was outperforming the best professionals with a system I developed using 5th grade math.  This kind of performance flew in the face of conventional thinking regarding performance and risk.

    In and Out Trading and my Theory of Margin Efficiency

    I gradually began to develop theories regarding market behavior and money management that might help explain why this simple short term breakout approach to trading did so well.

    I am going to discuss in this article one of the most critical of those theories, my theory of margin efficiency.

    To explain my theory of margin efficiency I am going to discuss a simple study I did using only one market over a 34 day period of time.  Studying just one market for only 34 days demonstrates nothing that is statistically significant; this study is for demonstration purposes only so you can understand what I am talking about.  In and of itself this study proves nothing and it is used here only to illustrate my theory of margin efficiency.

    I tested two systems I shall call simply LONG TERM BREAK OUT SYSTEM and SHORT TERM BREAK OUT SYSTEM.  The single NASDAQ market I used was SEED, Origin Agritech Limited.  I tested the systems over a 34 trading day period, 11/24/09 to 01/12/10.  Using my money management strategy both systems bought and sold 80 shares for all trades.  This number of shares is calculated to limit the cash margin requirement to approximately $1,000 per trade.  During this time period SEED put in a range of about $6 to $14.50 per share.  I consider this to be a very volatile market and hence a very good market for my trading strategies.

    These are some of the numbers coming out of this study:

    Two systems:   1) Long Term break out system   2) Short Term break out system

    Test from 11/24/09 to 1/12/10 (34 trading or “Study” days)

    LONG TERM SYSTEM made one trade lasting 34 days: It bought 80 shares of SEED on 11/24/09 at 11.74 (cash margin requirement $939).  It sold 80 shares on 1/12/10 at 14.14

    Net Profit $192 – $10 transaction costs = ACTUAL NET PROFIT = $182

    SHORT TERM SYSTEM: Made 6 trades buying and selling 80 shares each time.

    The 6 trades lasted two days each buying at an average price of 12.00 (average cash margin requirement $960), 3 win totaling $451. 3 losers totaling $259

    Net Profit = $192 -$60 transaction costs = ACTUAL NET PROFIT = $132

    Now this is my formula for calculating margin efficiency:

    Margin efficiency (ME) = ((Study Days / Days in Market) * (Actual Net Profit/ cash margin)) * 100

    That should read number of Study Days DIVIDED BY days the trade is in the market TIMES Actual Net Profit DIVIDED BY the required cash margin (price times number of shares) TIMES 100.

    Now let’s plug in the numbers for each system:


    ME = ((34/34) * ($182/$939)) * 100 = 19.38


    ME = ((34/12) * ($132/$960)) * 100 = 38.91

    The ME for the SHORT TERM SYSTEM is twice what the ME is for the LONG TERM SYSTEM.  What does that mean?  IN THEORY it means that a portfolio of ME 39s should make twice as much money as a portfolio of ME 19s.

    wp-content-uploads-2013-01-in-and-out-trading-2 In and Out Trading

    In order to understand this better let us return to our study.  The LONG TERM SYSTEM makes $182 in 34 days but there are no unused days.  During those 34 days a trader can only trade ONE market using the allocated cash margin requirement.

    The SHORT TERM SYSTEM, on the other hand, makes less, $132, but it is only in the market for 12 days.  That means that during the 34 study days there are 24 unused days and that means that other markets can use those blank days without increasing the margin requirement.

    Now if we fill up those blank days with short term trades from other markets that means we can make a lot more money in the same amount of time with the SHORT TERM SYSTEM than we can with the LONG TERM SYSTEM without increasing our margin requirement.  How much more can we make?

    If the LONG TERM SYSTEM makes $182 in 34 days it is making $5.36 per day.  If the SHORT TERM SYSTEM makes $132 in 12 days it is making $11.00 per day.

    If we fill in the 22 blank days with markets that also make $11 per day we can add $242 (22 * 11) to our net profits of $132 to get total net profits for the SHORT TERM SYSTEM equal to $374.  Now we are comparing $374 in profits for the SHORT TERM SYSTEM against $182 for the LONG TERM SYSTEM.  This is of course a theoretical value because markets never fill in those blanks perfectly.

    Another way to arrive at a theoretical value is to use the ME numbers we have already calculated.  If we divide the SHORT TERM SYSTEM ME of 38.91 by the LONG TERM SYSTEM ME of 19. 38 we get 2.01.  Now if we multiply our original SHORT TERM SYSTEM profits of $132 by 2.01 we get $265.

    Now we have two theoretical numbers $265 and $374 for projected profits for the SHORT TERM SYSTEM over period of 34 days.  Reality probably falls somewhere in between because the reality is that the blanks will not be filled by markets that are as volatile and that are trading as well as SEED.

    But regardless of volatility and performance how do we fill in the blank days with other market trades?  This starts to get into money management theory that is a little too long and complicated to cover in this one article.  However the simple answer is that I trade a lot of markets, currently 70 plus markets, to assure that all the blanks are filled.  And you now should understand of course that with a SHORT TERM SYSTEM I can trade many more markets with the same amount of money than I can with the LONG TERM SYSTEM and that by trading more markets I can reduce risk through market diversification.

    This then, in the most simple of terms, explains in and out trading works.  A short term in and out approach to trading works because it is margin efficient.  My theory of margin efficiency explains in part why these simple, short term break out trading systems can produce such high yields with limited risk.

    When deciding a strategy for trading the stock market you should carefully consider a short term trading approach, sometimes called “in and out trading” with high margin efficiency to assure you will be able to limit your risk while obtaining high returns on your investment.

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    I am a trading system pro and have been trading markets and have been involved with trading system development and the programming of trading system software for 25 years. “Today Stock Market” is my opportunity to share with you some of my trading experience while discussing stock market news and giving my daily stock market update.